J. Basic. Appl. Sci. Res., 3(11)34-45, 2013 © 2013, TextRoad Publication ISSN 2090-4304 Journal of Basic and Applied Scientific Research www.textroad.com Corresponding Author: Muzhar Javed, COMSATS Institute of Information Technology, Sahiwal, Pakistan. Email: mazhar@ciitsahiwal.edu.pk The Relationship between Corporate Social Responsibility and Firm Financial Performance: A Case of Pakistan Muzhar Javed, Rashid Saeed, Rab Nawaz Lodhi, Qamar Uz Zaman Malik COMSATS Institute of Information Technology, Sahiwal, Pakistan Received: July 17 2013 Accepted: August 21 2013 ABSTRACT World’s underdeveloped and conservative nations are surrounded by multiple problems ranging from political turmoil to bad economics. Political instability coupled with economic meltdown is posing serious threat to the very survival of Third World Nations on global landscape as these politically volatile, poorly managed and financially fragile nations are struggling to survive and sustain both politically and economically. Recently, development initiatives in these countries are seriously hampered by the non-availability of material resources which has resulted in form of social and economic downfall of these nations. This drastic situation requires corporate sector to play its role in the social and economic uplift of the nation. Corporate sector having enough resources can make real difference. Different Corporate Social Responsibility initiatives would be a win- win situation as Corporate Social Performance will add to Firm Financial Performance. This paper aimed at investigating the nature and strength of relationship between Corporate Social Responsibility and Firm Financial Performance using Carroll’s CSR Pyramid Model. The study analyzed the data of KSE-30 index organizations using Generalized Least Square Regression. In findings, Economic and Legal Responsibility positively impacted Firm Financial Performance while Ethical and Discretionary Responsibility negatively affected Firm Financial Performance. This study would reinvigorate individual and national economy through firm superior performance. It would promote culture of compliance and care by motivating organizations to respect relevant laws. KEY WORDS: Corporate Social Responsibility, Corporate Social Performance, Firm Financial Performance INTRODUCTION Much propagated globalization with booming Information Technology revolution has started to reshape the world and as a result, the gulf between the South and the North has started to widen. The South is at the crossroads, struggling for survival amidst a plethora of problems. Underdeveloped countries of the south are lacking political expediency, facing liquidity crunch, economically passing through a critical phase, and socially becoming vulnerable. Moreover, new developments on global landscape are also adding to their miseries and putting the very survival of these poor nations at stake as paucity of state funds and scarcity of other material resources are hampering socio-economic development process in these unprivileged nations. The longstanding struggle of world’s conservative nations to survive and sustain have made these nations to look towards giant organizations of the world and started to require the corporate sector to play a significant role in the social and economic development of these vulnerable nations. To the rescue of these nations, the commitment shown by the corporate sector is commendable in some parts of the world, yet the political and social impediments in other parts of the world are innumerable which delimit the corporate sector role to the socio-economic development of the nations. Corporate Social Responsibility (CSR) can make a real difference to socio-economic development scenario in developing and under-developed nations. In Corporate Social Responsibility, organizations simultaneously take care of organizational goals and societal interests by being responsible for the impact of their activities on diverse stakeholders. CSR is gaining much popularity and significance worldwide, catering to a variety of social and economic problems which conservative nations are confronting with. Recently, there is a sea change as corporate world is adding immense importance to societal interests and incorporating socio-economic considerations into their business strategy as Corporate Social Initiatives support contribute to community health (Aids prevention, timely immunization), safety (crime prevention, driving training), education (literacy, computer training) and employment (job training) and environment etc. In today business environment, Corporate Social Responsibility is assuming greater importance. Current developments on business spectrum have renewed interest in CSR and have asked for enhanced transparency and corporate citizenship. So it has caused CSR to grow exceptionally during the last decade. Majority of Fortune 1000 34